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Another big find at McFauld’s Lake, but not big enough

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TORONTO In a remote part of Ontario, little-known junior mining company Noront Resources Ltd. made an ultra-high-grade nickel-copper discovery last year that sparked one of the most frenzied staking rushes in recent Canadian history.

The find in the McFauld's Lake area had junior miners salivating at the prospect that the next Voisey's Bay was about to be revealed deep under the swamplands and frozen lakes in the northern reaches of the province. Volumes on the TSX Venture Exchange, where most of the juniors are listed, shot up to record levels. It even caught the attention of metal analysts, who wondered whether world markets should be bracing for a major new source of nickel and copper.

More than a year later, the bloom has come off the rose. The share prices of the more than 40 juniors who swooped in and claimed much of the prospective land near the initial discovery are hurting badly, with nearly every company seeing their trading value off by more than 50 percent. Even Noront's stock is at a fraction of its 2007 highs.

Undoubtedly, the credit crisis can be blamed for some of the deflated enthusiasm. Juniors, most with little cash flow of their own to speak of, were the first to see financing opportunities in debt and equity markets dry up—and it's hard to explore when the piggy bank is empty. Noront is one of the lucky ones, and this fall was still sitting on about Canadian $40 million ($36.3 million) in cash in the bank.

But drilling results that followed the initial discovery, known as Eagle One, haven't lived up to some of the initial hoopla. Eagle One turned out to be a small pipe-like body quite different from the Voisey's Bay ovoid and Eastern Deeps deposits in Labrador discovered by South Africa's Diamond Fields International Ltd. in the 1990s.

The area of mineralization, nicknamed the Ring of Fire for its half circular shape, is far from being written off as a potential future mining camp, but it will take a long time for its potential to be clearly known. The area has never been well mapped by surface geology, helping to keep any potential deposits well hidden.

Noront had about a dozen drills working in the region this fall on its 300,000 acres under claim, which is about 30 percent of the Ring of Fire. There have been continued discoveries of mineralized sulfide, but no massive ones such as Eagle One, which had outlined a gross metal value of nearly $2 billion. Given that there is no infrastructure, including power sources, in the region, a $2-billion find alone won't cut it. A series of deposits and mines would have to be developed in the land-locked region to make it all economically feasible.

The focus of the hunt for metals also has changed from nickel, copper and platinum group metals, to the less sexy—and to many, unfamiliar—world of ferrochrome.

A few months after its initial discovery, Noront made its Eagle Two discovery, which was a very different type of ore body. Much more spread out and not nearly as concentrated, it did contain something unexpected chromite. Further discoveries of the metal were made recently by other junior miners in the region, perhaps most notably by a joint venture between Freewest Resources Canada Inc., Spider Resources Inc. and KWG Resources Inc.

Chromite is used to make ferrochrome, which in turn is used in stainless steel to protect it from corrosive forces such as moisture. There are no chromite mines anywhere in the Western Hemisphere.

With hopes of the next Voisey's Bay discovery dashed, Noront and other juniors are now suggesting that McFauld's Lake could be akin to Outokumpu Oyj's Kemi chromite and ferrochrome mine in Finland, in production since the 1960s. Kemi is comprised of 11 chromite ore bodies, and as of 2006 ore reserves stood at 41.1 million tonnes grading 24.5-percent chrome.

"From a geological perspective, that's the best example of what we're dealing with today," Kevin Feeney, chief financial officer for Noront, said in an interview. Only Noront sees even greater potential. "We think we're dealing with chromite of 40 percent, which makes it incredibly valuable chromite, probably among the highest grades found anywhere in the world."

Along with that chromite would likely come associated nickel and copper discoveries, so the Ring of Fire is unlikely to be just a single commodity story. "The way I look at it, they will take turns outshining each other," Feeney said.

Some estimate that the McFauld's Lake region will need at least $20 billion worth of in-situ base metals to justify the infrastructure investment. That's going to require a lot of ore hunting—and a lot of good luck. But while investors are clearly now worried they could get badly burnt by this Ring of Fire, there's still reason to speculate that an abundance of minerals awaits those willing to take the gamble. DARCY KEITH

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